TEXT-S&P puts Waste Connections 'BBB' rating on watch negative
Overview -- Waste Connections Inc. today announced that it has entered into an agreement to acquire R360 Environmental Solutions Inc. for $1.3 billion in cash. -- The transaction is subject to certain closing conditions, including receipt of regulatory approvals, and the company expects the closing to occur in the fourth quarter of 2012. -- We are placing our 'BBB' corporate credit rating on the company on CreditWatch with negative implications. This reflects our expectation that the acquisition will likely have a negative impact on the company's financial risk profile, which could lead to a downgrade. Rating Action On Sept 17, 2012, Standard & Poor's Ratings Services placed it 'BBB' rating on Texas-based Waste Connections Inc. on CreditWatch with negative implications. Rationale The CreditWatch placement reflects the likelihood that Waste Connections Inc.'s financial risk profile will weaken beyond expectations at the current rating, given the expectation that the company will primarily fund the R360 Environmental Solutions acquisition with debt. The CreditWatch placement will also allow for a reassessment of Waste Connections' business risk profile following the acquisition, and a more thorough understanding of management's financial policy objectives. Waste Connections ranks among the leading solid waste companies in the U.S. and generated revenues of $1.6 billion for the 12 months ended June 30, 2012, through a balance of collection services, disposal and transfer services, recycling and other services in mostly secondary (non-urban) markets. A key to resolving the CreditWatch will be assessing the implications of the acquisition on Waste Connections' competitive position, growth strategy, and the company's track record of consistent profitability. As of June 30, 2012, credit measures were appropriate for the rating, with funds from operations (FFO)-to-total debt (adjusted for capitalized operating leases) at 36%, and free operating cash flow-to-total adjusted debt of 22%. At the current ratings, we expect FFO-to-total adjusted debt to average near the 30% level. The company expects the acquisition to close in the fourth quarter of 2012 and the acquisition is subject to customary regulatory approvals and closing conditions. CreditWatch We placed the ratings on CreditWatch with negative implications. We will monitor developments relating to this transaction and will resolve the CreditWatch listing once further details related to the transaction become available. We intend to meet with management to discuss a variety of topics related to the transaction, such as integration risks, the pro forma capital structure, and management's strategic objectives and financial policies. The CreditWatch placement indicates the heightened risk that we will lower the ratings following our review of the transaction and implications for credit quality. Related Criteria And Research -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- Corporate Ratings Criteria 2008, April 15, 2008 Ratings List CreditWatch/Outlook Action To From Waste Connections Inc. Corporate credit rating BBB/Watch Neg/-- BBB/Stable/-- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.